MovieTickets Vs. AMC: Did Theater Chain Pull A Double-Cross?

EXCLUSIVE: It sure looks that way based on the eye-opening — and, up to now, undisclosed — stories of hardball gamesmanship that MovieTickets tells the Circuit Court in Palm Beach, Fla., in its breach of contract suit against AMC Entertainment. The online ticketing company and its backers — ad and ticket sales company Hollywood Media, and Sumner Redstone‘s National Amusements — say in the second amended complaint filed last month that the No. 2 theater chain, a founding member, engaged in “unconscionable, unfair, and deceptive acts and practices.” They culminated in AMC’s decision in February to move its online business to Comcast-owned Fandango. The plaintiffs add that MovieTickets’ “current viability has been threatened” by AMC. But if they prevail, then AMC might have to return to the fold and pay as-yet unspecified damages. That could belie the claim by The New York Times and its followers in the trade press that the online ticket sales competition is already over, with Fandango the winner. Even though AMC switched sides, it noted in an SEC filing on Friday that it still owns 26.2% of MovieTickets.

It’s hard to predict the outcome of the case. AMC isn’t ready yet to share its side of the story, and hasn’t filed a detailed response; MovieTickets also declined to comment. But the court filing from MovieTickets and its fellow plaintiffs is compelling, and filled with startling details. If they hold up to scrutiny, then they’d underscore the level of desperation among AMC’s private equity owners over the last few years to recoup their investments in the company following deals that left it with a massive debt — $2.2B at the end of March. They agreed in May to sell AMC to China’s Wanda Group for $2.6B which includes the assumption of AMC’s debt.

According to the suit, the seeds of the dispute with AMC were planted in 2000. The chain teamed with Hollywood Media to form MovieTickets as a 50-50 joint venture. Shortly afterward they brought in National Amusements, leaving each partner with a third of the company. (The exact numbers changed somewhat over the years as others acquired minority stakes.) Their agreement required the partners to use MovieTickets exclusively for their online sales as they set on a path to eventually take the company public.

AMC’s commitment to MovieTickets was tested around 2005 as the private equity investors who paid $2B for the theater chain in 2004 negotiated to also acquire Loews Cineplex. Two months before the deal was announced, Loews extended its alliance with Fandango to 2011. AMC “affirmatively or tacitly” encouraged Loews “in order to end up with a foot in each camp of the competing Internet movie ticket providers,” the suit says. When AMC’s deal with Loews closed in early 2006, the MovieTickets partner also owned 8.4% of Fandango and sat on its board. National Amusements and Hollywood Media believed that the JV deal with AMC required it to switch its Loews theaters to MovieTickets. The partners sought to set matters straight at a June 30 meeting at the New York office of law firm Jones Day. AMC’s then-chief Peter Brown — who was also co-CEO of MovieTickets and a director — told the group that the JV would land Loews’ business in 2011 and, the suit says, “further re-committed to continue AMC’s business relationship with the other Joint Venturers and MovieTickets.com for the long term.” With that assurance, and the belief that the IPO plan was still on track, the MovieTickets partners say that they cut AMC some slack and agreed not to insist that it move Loews over to their platform immediately.

AMC’s relationship with MovieTickets became more complicated in 2007 after Comcast bought Fandango — a $225M deal that included $20M for the theater chain’s shares. At year end, the cable company offered to buy MovieTickets for as much as $160M, the suit says. Instead of helping to pursue the deal, AMC recommended other arrangements that would leave it with more power over online ticketing. The proposals didn’t go anywhere. But by October 2008, the suit says, AMC had an alternative of its own: Comcast offered the chain $60M to jump to Fandango. AMC told its MovieTickets partners that it might exercise a provision in the original deal that allows members to withdraw with 60-days notice. They countered that the obligation to continue using MovieTickets exclusively would remain in force. AMC’s talks with Comcast continued through July 2009 when AMC directors were privately told at a board meeting that “remaining with MTC [MovieTickets.com] is not an option.” Management recommended that the company accept a Comcast offer for as much as $135M. Once AMC sided with Fandango, the board presentation said, it would “Eliminate MTC [MovieTickets.com] as a competitive threat.” The Comcast option seemed to fizzle, though, in March 2010 when it lowered its offer to $75M.

MovieTickets’ prospects improved over the course of 2010. Management told the board in January 2011 that the venture was about to sign several exhibition chains including what the suit calls “one of the largest theater chains in the country.” Once done, MovieTickets would be valued at $1B — the target for launching its IPO. To help resolve the differences with AMC, they agreed to give the chain additional equity. Things seemed to be going well: AMC made plans to move its Loews theaters over to MovieTickets in September when the 2005 arrangement with Fandango expired.

But the camaraderie abruptly ended two days before the transition was scheduled to take place, the suit says. AMC said would only proceed if it was given outright control of MovieTickets — including the power to pick the CEO and decide what business deals it would make — as well as the right to also sell tickets through Fandango. The partners refused. In a September 19 meeting, AMC said that it had a non-exclusive deal with Fandango, and would pull out of MovieTickets unless it agreed with the company’s terms. “AMC’s CEO [Gerry Lopez] acknowledged that because AMC was MovieTickets.com’s largest customer and represented approximately 40% of MovieTickets.com’s ticket sales, AMC’s threatened action could lead to the destruction of the Company,” the suit says. MovieTickets still wouldn’t agree but continued negotiating.

It was for naught. On October 27, Hollywood Media and National Amusements sued AMC. A few days later AMC officially gave notice that it would pull out of the JV. Shortly afterward, the big theater chain MovieTickets hoped to land put the plan on hold. The partners continued talking to AMC. Again, to no avail. AMC publicly announced its move to Fandango on February 8. “Fandango will be both an important driver of business for AMC and a huge convenience for our guests,” AMC’s SVP of Strategy & Partnerships, Elizabeth Frank — who allegedly was still a member of the MovieTickets board — said in the release. Two days later, the suit says, she and other MovieTickets directors from AMC officially sent their resignation letters, “purportedly retroactively effective four days earlier, on February 6, 2012.”